Fall of star drugs hurts Merck, Lilly

By Associated Press
Published October 22, 2004

NEW YORK - Merck & Co. profits plunged in the third quarter in the wake of the recall of its Vioxx arthritis drug, and Eli Lilly & Co. expanded a layoff to 1,000 workers because of falling sales of its antipsychotic medicine Zyprexa. Both show the perils of drug makers relying on a handful of blockbuster medicines.

European pharmaceutical companies also reporting earnings on Thursday fared better. Novartis AG reported a 21 percent profit rise, thanks to strong sales of the hypertension drug Diovan and cancer drugs. And AstraZeneca PLC said its net profit rose 51 percent even after federal regulators in the United States refused to approve the sale of Exanta, an anticoagulant that had been touted as a potential best seller.

Lilly shares fell more than 4 percent on Thursday, and Merck's stock closed down 0.5 percent. But shares of Novartis and AstraZeneca closed higher, gaining 0.5 percent and 0.9 percent, respectively. Even though Merck did not announce until the final day of the third quarter that it was withdrawing Vioxx, a popular treatment for arthritis and acute pain, it recorded $552.6-million in charges for the quarter for unsold Vioxx inventory, estimated customer returns and costs of the recall worldwide. A study found that Vioxx, which accounted for about $2.5-billion, or 11 percent of Merck's sales in 2003, increased risk of heart attack and stroke.

Because of lost revenues for Vioxx, Merck estimated its fourth-quarter earnings per share would fall to between 48 cents to 53 cents, and full-year earnings per share would be between $2.59 and $2.64. Eli Lilly's per-share earnings beat by a penny the consensus estimate by analysts surveyed by Thomson First Call. Sales of its top drug, Zyprexa, dropped 9 percent to $1.02-billion. U.S. sales of the treatment for bipolar disorder fell by 22 percent, to $557.3-million, which Lilly attributed to competitive pressure and stocking changes by wholesalers.

Lilly also said it was eliminating about 425 more jobs as part of a restructuring to compensate for falling sales of Zyprexa. It had previously announced 575 layoffs.